Methods and systems for commoditizing interest rate swap risk transfers

Abstract

A data structure method, class, system and computer program product for trading a commoditised financial claim. The claim obligates one party to pay on demand to a second party on any date an amount transparently determined with reference to a market quote for pre-specified spot-starting benchmark interest rate swap contracts prevailing immediately prior to that payment date. The claim may be a debt obligation of a third party settled on a spot basis. In one optional embodiment, the claim is in securitised form that settles through a securities clearing system, can be traded simultaneously by several dealers, can be listed on major stock exchanges and can be rated by debt rating agencies. There is a linear intra-day and index-linked overnight relationship between (i) the market rate for the pre-specified reference constant maturity swap and (ii) the payment obligation. Alternative bilateral and futures contract embodiments are also disclosed.

1 . A computer implemented method of trading interest rate risks comprising at least one of the sequential, sequence independent and non-sequential steps of: 
 a first party trading, a first interest rate risk, to a second party for a second interest rate risk;    applying a daily adjustment to the first interest rate risk; and    determining a trade value of the trade of interest rate risks, the trade value being responsive to a live spot quote and the daily adjustment.    
     
     
         2 . A computer implemented method of trading interest rate risks, according to  claim 1 , wherein the first interest rate risk is fixed during each trading day.  
     
     
         3 . A computer implemented method of trading interest rate risks, according to  claim 2 , wherein the second interest rate risk is floating.  
     
     
         4 . A computer implemented method of trading interest rate risks, according to  claim 3 , wherein the trade value changes in response to the second interest rate risk.  
     
     
         5 . A computer implemented method of trading interest rate risks, according to  claim 4 , wherein the trade value changes linearly in response to the second interest rate risk.  
     
     
         6 . A computer implemented method of trading interest rate risks, according to  claim 4 , wherein the trade value changes based on an intra-day adjustment applied to the second interest rate risk.  
     
     
         7 . A computer implemented method of trading interest rate risks, according to  claim 4 , wherein the second interest rate risk is identical to a live market rate for an interest rate swap.  
     
     
         8 . A computer implemented method of trading interest rate risks, according to  claim 4 , wherein the second interest rate risk is equal to a live market rate for an interest rate swap plus an intra-day adjustment.  
     
     
         9 . A computer implemented method of trading interest rate risks, according to  claim 1 , wherein the daily adjustment to the first interest rate risk is based on a published index value.  
     
     
         10 . A computer implemented method of trading interest rate risks, according to  claim 9 , wherein the published index value is published once daily.  
     
     
         11 . A computer implemented method of trading interest rate risks, according to  claim 1 , wherein the trading of interest rate risks is completed using at least one of a securities exchange and a futures exchange.  
     
     
         12 . A computer implemented method of trading interest rate risks according to  claim 1 , wherein the daily adjustment for a particular day is computed according to:  
           ELA=SNIP+ηOA −η( DA+MA )+η* ELAM    
       where SNIP=a capitalised forward constant maturity swap adjustment; η=a switch having the value of 1 for a pay position and a −1 for a receive position; OA=an option related adjustment; DA=a proceeds adjustment; MA=mark-to-market adjustment; ELAM=a entry level adjustment margin; and a computed value ELA is an adjustment to the first interest rate risk.  
     
     
         13 . A computer implemented method of trading interest rate risks according to  claim 1 , wherein the daily adjustment for a particular day is computed according to:  
       
         
        
         ELA=SNIP−ηMA+η*ELAM  
        
       
       where SNIP=a capitalised forward constant maturity swap adjustment; η=a switch having the value of 1 for a pay position and a −1 for a receive position; MA=mark-to-market adjustment; ELAM=a entry level adjustment margin; and a computed value ELA is an adjustment to the first interest rate risk.  
     
     
         14 . A computer implemented method of trading interest rate risks according to  claim 1 , wherein the daily adjustment for a particular day is computed according to:  
           ELA=SCI−RAI +η(α OA+ELAM )−ηβ DA    
       where SCI=a cash equivalent balance adjustment, denominated in IDC; RAI=a Curve Point dividend, payable in IDC, dependent on SNIPR; SNIPR=is a Curve Point financing rate; η=a switch having the value of 1 for a pay position and a −1 for a receive position; OA=an option related adjustment; DA=a proceeds adjustment; ELAM=an entry level adjustment margin; α=a switch having the value of 1 for a contract whose value is subject to a maximum level or a minimum level and 0 otherwise; β=a switch having the value of 1 for a contract involving an upfront payment and 0 otherwise; and a computed value ELA is an adjustment to the first interest rate risk.  
     
     
         15 . A computer implemented method of trading interest rate risks according to  claim 1 , wherein the daily adjustment for a particular day is computed according to:  
           ELA=SNIP+η*ELAM −η*( MFA+CIA )  
       where SNIP=a capitalised forward constant maturity swap adjustment; η=a switch having the value of 1 for a pay position and a −1 for a receive position; MFA=a mark-to-market adjustment; CIA=a compound interest adjustment; ELAM=an entry level adjustment margin; and a computed value ELA is an adjustment to the first interest rate risk.  
     
     
         16 . A computer implemented method of trading interest rate risks according to  claim 1 , wherein a value sensitivity risk associated with a trade of interest rate risks is reported as units of a hedging instrument.  
     
     
         17 . A computer implemented method of trading interest rates risks according to  claim 1 , wherein a value sensitivity risk associated with a trade of interest rate risks is reported as absolute cash sensitivities to movements in the prices of hedging instrument.  
     
     
         18 . A computer implemented method of trading interest rate risk according to  claim 1 , further comprising displaying risk information for at least one of the first interest rate risk and the second interest rate risk, wherein the risk information is at least one of one of sensitivity of a trade value to a Curve Point Rate, sensitivity of a hedging unit equivalent to the Curve Point Rate, sensitivity of the Curve Point Rate value sensitivity, sensitivity of the published index value to the Curve Point Rate, the Curve Point Rate volatility, an overnight interest rate, and a general level of interest rates.  
     
     
         19 . A computer implemented method of trading interest rate risks based on an index value comprising the sequential, sequence independent and non-sequential steps of: 
 setting an initial value based on a trade of interest rate risks;    computing an adjustment to the initial value based on a published index;    adding the adjustment to the initial value; and    trading at least one reference interest rate risk transfer contract based on the adjusted initial value.    
     
     
         20 . A graphical user interface method for use in electronic interest rate swap trading systems comprising at least one of the sequential, sequence independent and non-sequential steps of: 
 displaying an interest rate curve;    displaying at least one instrument along a first axis by reference interest rate length;    displaying the at least one instrument along a second axis by interest rate; and    displaying the at least one instruments symbolically responsive to said first and second axes to be used in the electronic interest rate trading system.    
     
     
         21 . A graphical user interface method, according to  claim 20 , wherein the additional information is at least one of an international stock identification number, a prevailing holding cost, a risk amount, an equivalent reference IRS notional amount, a projected monthly holding cost adjustment, and a probability of early termination.